Spendthrift clause
A term in a trust preventing a beneficiary from selling or pledging their interest, and preventing their creditors from reaching it.
What it means
A spendthrift clause restricts what a beneficiary can do with an interest they have not yet received, and what a creditor can take.
Protection generally ends once money is actually distributed. It protects the interest, not the beneficiary's bank account.
Most states recognize exceptions — commonly for child support, alimony, and certain government claims.
Why it matters
It is what makes a trust useful for a beneficiary with debts, a difficult marriage, or an addiction, and it is a standard clause rather than an exotic one.
It also constrains the beneficiary, which is the point and is worth understanding before agreeing to be one.
When you are likely to meet it
- When reading a trust as a beneficiary.
- When a beneficiary has creditors or is going through a divorce.
- When deciding how to leave money to somebody who struggles with it.
How this varies by state
Whether a spendthrift clause is enforceable, and which creditors can reach through it, are set by state law.